Tariff Fears Reverse Recent Gains in Manufacturing Sector

Tariffs may be designed to bolster manufacturing, but the sector is starting to show nerves amid uncertainty around the import taxes.

Two manufacturing industry surveys Tuesday showed that managers in the sectors saw slowing business in March, reversing recent growth. While tariffs continued to weigh on short-term sentiment, the surveys also showed that manufacturers were becoming increasingly worried about tariffs’ long-term effects. 

“Production and new orders portrayed weaker dynamics and businesses were less eager to hire in a less certain environment,” wrote Nationwide Financial Market Economist Oren Klachkin.

PMI Surveys Fall in March as Prices Rise, Employment Slows

The manufacturing Purchasing Managers Index (PMI) for March fell to 49%, indicating a contraction in business activity coming after two months of growth in the Institute of Supply Management’s (ISM) survey.

Before registering expansion in January and February, the ISM survey showed nearly two straight years of contraction in the U.S. manufacturing sector. Factory managers struggled with inflated prices and high borrowing costs. However, uncertainty around tariffs policy is taking its toll on the sector, as survey results showed that potentially higher import taxes were at the top of manufacturing executives’ minds. 

The ISM survey also showed that prices rose while new orders declined, hiring slowed and inventories piled up as manufacturers bought supplies ahead of the tariffs. A similar report from S&P Global also reflected declining sentiment in the manufacturing sector.

“A front-running of tariffs and shift to minimize import exposure is driving up prices, while persistent uncertainty is crimping underlying demand and leaves manufacturers longing for clarity,” wrote Wells Fargo economists Shannon Grein and Tim Quinlan.

Manufacturers Looking Ahead to Trump Tariff Announcements

The reports come ahead of Wednesday’s “Liberation Day,” on which Trump is set to announce new tariff policies that could impact business with a wide swath of U.S. trading partners. 

Trump has promoted tariffs as a means to help the struggling U.S. manufacturing sector by encouraging more domestic production of goods. However, uncertainty over what the details of the tariff policy will be moving forward is dampening some manufacturers’ outlook, said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“Business optimism about the year ahead has deteriorated further from January’s near three-year high and has dropped sharply over the past two months, causing firms to stop raising payroll counts for the first time since October,” Williamson said.